2017 (5) TMI 388 - AT - Central Excise

Penalty - shortage of stock - appellant claim that due to the mischief or wrong advice of those technical persons, resulted in discrepancy in the actual stock and book records - whether the penalty imposed u/s 11 AC by the Additional Commissioner have been rightly reduced to 25% under proviso to Section 11 AC of the Act? - Held that - there is no instance of any clandestine activity found by the revenue. Only on the apparent shortage of inputs and finished goods, the demand had been raised which is wholly presumptive in nature - This Tribunal in several similar matters have held that no demand of duty is sustainable, only for some apparent shortage found at the time of stocktaking without any instance of clandestine activity on the part of the manufacturer - on the discrepancy pointed on inspection appellant had reversed the Cenvat credit taken on the raw material and paid the duty on the finished goods found short, under intimation to the revenue - the SCN is vague and presumptive and accordingly not sustainable - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Reduction of penalty under Section 11 AC
2. Cenvat credit on raw material
3. Shortage of inputs and finished goods
4. Presumption of clandestine activity
5. Demand of duty and penalty

Reduction of Penalty under Section 11 AC:
The appeal filed by the Revenue questions the reduction of penalty imposed under Section 11 AC by the Additional Commissioner to 25% under the proviso to Section 11 AC of the Act. The issue revolves around the correctness of this reduction.

Cenvat Credit on Raw Material:
The case involves a respondent-assessee engaged in the manufacturing of MS bars who was availing Cenvat credit on their raw material, specifically MS ingots. An inspection revealed a significant shortage of inputs and finished goods, leading to the calculation of Cenvat credit attributable to the shortage and the duty payable on the finished goods found short.

Shortage of Inputs and Finished Goods:
The inspection highlighted a shortage of 844.63 MT of MS ingots and 85.800 MT of MS bars. The director of the respondent initially agreed to reverse the Cenvat credit and pay the duty on the finished goods. Subsequently, explanations were provided regarding the shortage, attributing it to the manufacturing process's burning loss exceeding the standard burning loss.

Presumption of Clandestine Activity:
The Revenue issued a show cause notice presuming that the shortage of inputs and finished goods indicated possible clandestine activities, leading to the demand for duty payment and penalties. However, the Tribunal found no concrete evidence of clandestine activity, emphasizing that the demand based solely on apparent shortages without proof of wrongdoing is not sustainable.

Demand of Duty and Penalty:
After considering the arguments and evidence, the Tribunal concluded that the show cause notice was vague and presumptive, lacking sufficient grounds to sustain the demand for duty payment and penalties. Consequently, the impugned order was set aside, and the appeal filed by the Revenue was dismissed, with the respondent entitled to consequential benefits as per the law.

In conclusion, the judgment highlights the importance of concrete evidence in establishing duty demands and penalties, emphasizing the need to move beyond mere presumptions of wrongdoing. The decision underscores the requirement for clear substantiation of allegations to uphold demands for duty payments and penalties in such cases.